EconoMeter: Should Congress extend unemployment benefits?

Yes 56% correct! (414)

No 31% correct! (228)

Yes and No 12% correct! (91)

Don't know 0% (3)

736 total votes.

Ask the economists: Each week the Business section will ask its panel of economists to weigh in on an economic issue of concern to San Diegans. They’ll answer yes or no, up or down or give a neutral response. Sometimes they might be unavailable to participate. If you have a question you’d like them to address, send it to roger.showley@uniontrib.com.

This week's question: President Obama has reached an agreement with Republican Congressional leaders on extending the Bush tax cuts and other breaks that were due to expire Dec. 31. One of those would extend unemployment insurance for workers who have been laid off for more than 26 weeks and less than 99 weeks. One new tax break would reduce workers’ (but not employers’) Social Security taxes from 6.2 percent to 4.2 percent for one year. It remains to be seen if Congress covers these added costs - $55 billion for unemployment extension, $120 billion for the Social Security reduction-- with reduced spending. So, our question: Should Congress extend unemployment insurance coverage and reduce Social Security taxes for one year?

Note: Norm Miller from CoStar Group was not available to contribute this week.

Marney Cox

Marney Cox, San Diego Association of Governments

Answer: Yes and no

Because Congress has consistently extended the unemployment benefits during this recession we must continue until the opportunity to find a job is less bleak.

On Social Security taxes, first the downside: Most consumers use temporary income increases to pay down debt or increase savings; little of it is spent. If consumers surprise us and go on a spending spree, 2011 will look better but 2012 will look worse as tax rates rise and reduce consumption. Without an equal reduction in expenditures the tax cut will increase the federal deficit. On the good side, the tax cut is not a redistribution of income and the benefits would be received by those paying it.

Kelly Cunningham

Kelly Cunningham, National University System

Answer: Yes

It would have been better for Congress to have already stimulated the economy through tax cuts, regulatory reforms, and more clarity on their future actions, thus allowing the private sector to expand more strongly to hire additional workers.

Unfortunately, at this point, extending unemployment benefits yet again is critically needed. Jobless benefits are arguably a disincentive to work as it induces or allows some to hold out for better paying jobs than those available. But at a time of high unemployment, even lower paying jobs are not accessible. More money in the pockets of workers strengthens the economy.

Alan Gin

Alan Gin, University of San Diego

Answer: Yes and no

As I said last week, if we are going to borrow more money from the Chinese, we should use it where it would do the most good in stimulating the economy. Economy.com and the Congressional Budget Office rank extending unemployment benefits high in effectiveness in boosting the economy, as unemployed workers would spend virtually all of the aid.

On the other hand, reducing the payroll tax for employees has a smaller impact, as some of the money will be saved by higher income households. Cutting the payroll tax for employers would be more effective because it encourages job growth by reducing the cost of labor.

James Hamilton

James Hamilton, University of California San Diego:

Answer: Yes

Although the compromise received sharp criticism from both the left and the right, I feel that it strikes the appropriate balance across competing objectives. Extending unemployment insurance and reducing payroll taxes should boost private-sector spending and make a modest contribution to speeding the economic recovery.

But it is important at the same time to make a concrete commitment today to address the looming deficits in the coming years. Making the changes explicitly temporary is an important ingredient in maintaining that balance.

Gary London

Gary London, The London Group

Answer: Yes

There are very few tools left in the “tool box” to bolster economic recovery. While revenues are needed, the better fix is to focus on (1) economic stimulation, which is likely bolstered if taxpayers have more money to spend, a probable result of these temporary moratoriums and reductions, and (2) cost reduction. Hopefully the new “balance of power” will continue to find common ground.

Liberals can no longer press for government to help in every way if prosperity is dim and the cupboards are bare. Conservatives can’t just keep advocating for tax cuts without cutting government costs in every uncomfortable area. They both had better start talking to each other. The president seems mostly to understand the value of that!

Lynn Reaser

Lynn Reaser, Point Loma Nazarene University

Answer: No

Extending unemployment insurance for a prolonged period of time (with the maximum length of benefits currently at nearly two years) may be exacerbating the high level of joblessness by dissuading individuals from taking lower-paying jobs that are available. Reducing Social Security taxes for one year is unlikely to spur much economic activity, since temporary tax cuts are generally mostly saved. A reduction in payroll taxes would only further aggravate the long-run unfunded liability of the Social Security system. Especially with the Federal Reserve’s aggressive monetary easing and no rise in income tax rates, the economy needs no more fiscal stimulus. Americans can stand on their own two feet.

Dan Seiver

Dan Seiver, San Diego State University

Answer: Yes

These measures will stimulate a still-sputtering economy. We need more fiscal expansion now, since monetary policy, with more quantitative easing, is already as stimulative as it can be. The one-year Social Security tax cut will stimulate consumer spending a bit, and extending unemployment insurance will help those most hurt by the Great Recession. These extra expenditures should not be covered with cuts elsewhere, or this modest stimulus will be ineffective. We still need to balance the budget, but not when the economy remains so weak. History shows that recoveries from collapses caused by exploding credit and debt bubbles often take many years. Japan is still trying to recover after 20 years. We can and should do better.